LIF: The negatives outweighed the benefits
Eight years after the implementation of the Life Insurance Framework (LIF) questions need to be asked about whether the outcome justified the costs inflicted on the life insurance industry and life/risk advisers, according to a new white paper.
The white paper has identified that the only benefit derived from the LIF was a reduction in policy churn but that this needs to be weighed against the deficits of a decline in life/risk sales, a 67% decline in the number of specialist life/risk advisers and an estimated 18% increase in Australia’s life insurance gap.
What is more, policy lapse data for the period leading up to and following the implementation of the LIF suggests that the level of churn was well short of 16%.
Just as importantly, the research asserts that, on the available evidence, there has been no decline in the cost of life insurance premiums which can be directly attributed to the LIF.
The white paper concludes that the LIF was founded in political decisions taken around the Australian Securities and Investments Commission’s 2014 Report 423 which identified policy churn as a problem and that with the final recommendations of the Quality of Advice Review (QAR) currently the subject of a Federal Cabinet decision its fate will also be determined by political decision-making.
The white paper, the product of a work by Financial Newswire and specialist research business, WealthData, will be launched at the Life Insurance Outlook Conference in Sydney today – an event at which the chief executive of the newly-formed Council of Australian Life Insurers (CALI), Christine Cupitt, will be delivering her first industry keynote.
The white paper has been developed at the same time as the Government considers the final recommendations of the Quality of Advice Review (QAR) and whether to accept a continuation of the LIF and its commission-based adviser remuneration formula.
With respect to the future of the LIF, QAR chair, Michelle Levy, has recommended that the LIF continue on the following basis: “The exception to the ban on conflicted remuneration for life insurance should be retained but subject to a new condition that a person who provides personal advice to a retail client about a life risk insurance product obtain the client’s informed consent before accepting a commission”.
Levy has also recommended “the current commissions and clawback rates should be retained”.
The white paper also delivers the first focused analysis of what it terms “the decline and not quite fall of life/risk advisers” with WealthData revealing that the number of financial advisers who can offer risk insurance but not investment advice has reduced by 67%.
It finds that there are now fewer than 590 people still listed on the Financial Adviser Register (FAR) who could be viewed as life/risk specialists.
Await the white paper….. here’s mine.
Banks & Life Co’s wanted to flog more dodgy Direct Life Insurance via call centres & online sales and cut out Advisers.
LNP happy to help.
ASIC agreed to help as they hate Advisers & Commissions, thus the purposely skewed already known small focus group of Life Ins Churning Advisers were selected for ASIC Report 423, with obvious result these small group of Advisers were Churners. This skewed report was then extrapolated to the entire industry to falsely justify LIF.
Was all going as planned until the RC effectively banned dodgy Direct Life Ins.
Now we have LIF results:
– premiums generally doubled, not reduced.
– commissions upfront halved to below cost of business for many policies.
– massive loss of Risk Advisers.
– significant increase in uninsured.
– Life Co’s new business dropping dramatically.
– small reduction in policies churned.
Great job LIF = NOT !!!
Agree with everything you have said.
I would also add another factor, that the original article and white paper appear to have missed. The underinsurance trend is not just due to the decline in specialist insurance advisers. It is also due to specialist insurance advisers remaining in business but not taking on new clients, and to generalist advisers who typically would have done 20-40% of their business as insurance, not doing any new insurance business. These factors are harder to discern from published data, but anecdotally they appear quite significant.
Agree with Ben as to the reasons we had LIF imposed on us. One reason though omitted is equally as important: the bank boards had by this time decided to get out of ownership of life insurance companies. Even before the RC, they were faced with billions of dollars in reparations for poor advice and, the real bottom line, is that the banks had discovered (who knew?) that life insurance companies barely returned 8% on capital in Australia.
To the banks, that level on return was rubbish.
So they decided to sell. Who to?. There was no money in the Australian market to purchase Comminsure, BT, One Path & MLC – now too big. So the pitch was made to overseas businesses, mostly the Japanese. But the banks had a problem and they knew that the Japanese would also be extremely interested on return on investment.
So the banks latched on to Report 413 and proposed LIF, because they could then say to prospective buyers that they had just reduced UPFRONT distribution costs by 50%. No one took notice of the doubling of renewal commissions and the long-term impact on profitability because that was regarded as a “needed” churning measure, and we all know where churning really occurred: one dealership, owned by one long-standing insurer, where that dealership had fallen foul of the new CEO. Head on a platter !
The banks found it very easy to convince ASIC, Treasury and that idiot O’Dwyer, that LIF would be good for the industry. QED
Short term, stinkin thinkin!
I agree to. But sadly to what point?
Where done.
ASIC, the Insurance manufactures and sections of the media. Along with the political class. Are all responsible for this Tragic result.
Now the above assassins have left the Australia community with a hollowed out , declining and imploding Insurance advisory sector.
Those brave soles still left trying. Are capitulating, and exhausted. Now worrying about their own health and self being. And trying to find another way to define what’s left of their working years…
As if all their achievements, all the tens of thousands of Australian families and business they helped survive and carry on after tragedy struck . Seems to count for nothing.
Thanks to those involved in what appears to be an important piece of work.
The real scandal in all of this, is ASIC’s deplorable REP413 which was the catalyst behind LIF. It is bad enough they targeted high volume, suspected churners for their research; but to go on the ABC on the night of the release, and imply that it was a representative sample was reprehensible. ASIC’s press release also omitted the targeted nature of the research, which greenlighted the media to go on a defamation campaign, permanently damaging our profession. If a university engaged in this conduct, it would be a scandal. They would be shunned from the academic community. But somehow the government regulator got away with it.
Since then, ASIC has conducted similar research on accountant-driven SMSF advice and Industry Fund intra-fund advice. In both cases they break the non-compliance figure down to harmful and technical non-compliance, to downplay the level of misconduct. Yet ASIC has refused to release the same breakdown for REP413. Why?
I hope one day in my lifetime, those involved in this dark chapter of financial services regulation are held to account. Careers, businesses and lives have been destroyed, and now Australian consumers are suffering.
Well done on the report! It basically reaffirms what we all knew.
There should be a parliamentary enquiry into ASIC regarding LIF, the misleading statistics they used, and the unintended consequences. It’s basically destroyed the insurance industry and taken a lot of advisers with them, not to mention it has not had one benefit for consumers. Terrible government policy!
Prior to LIF we included insurance as an integral part of our holistic planning for clients, quite successfully with a reasonable portion of revenue for the business and steady stream of referrals from associated professional relationships (accountants, mortgage broker & lawyers etc).
We stopped primarily due to the draconian and erroneous LIF restrictions.
Savagely reduced remuneration with more severe clawback and the increase business risks (mainly due to the ASIC witch-hunt, in the era of the infamous & insane Kell ‘Heads on sticks’ bullsh*t) made it untenable so we stopped completely and have never regretted the decision.
We have a substantially more successful and focussed business with none of the time-consuming life-draining issues dealing with Life companies, underwriting, medicals, bloods, doctors and tardy clients, not to mention drawn out claims. Yes, I know these can all theoretically be costed out and charged/recovered, but seriously our lives are better for not doing it and referring out to the few specialists in town that we trust who do still deal in this area.
So thank you Kell (but still may your corrupt soul rot in h3ll), you actually did us a huge favour by changing our focus and also reducing adviser numbers, helping us to become far more successful and profitable than we had originally thought! (But you’re still an utter @rsewipe)